Following last weeks Wednesday morning and late night discussions about moving to 100% cash, the office phones lit up — long/short accounts, FusionIQ subscribers, people in asset allocation model, even bond holders.
We keep getting emails asking about this — and last week was off the charts in terms of inquiries.
I might as well explain to blog readers the way we — I have several partners — run our business(es). In hindsight, I probably should have explained this years ago.
Everything we do comes from our quantitative research. We have three business lines: Asset management, Institutional Trading and FusionIQ. They are all based on what the data says, and how we can interpret and contextualize those numbers.
We believe in a weighted evidence approach that is data driven and reality-based. Our market posture, our risk management also comes from the research.
I do the top down work, looking at Macro Factors ranging from market technicals to economic trends, with history, contrary indicators, valuation and trend key parts of my approach. My partner Kevin Lane does the bottoms up work: He is a technician by training, a quant by preference. He gets extremely granular when it comes to looking at Trend, Breadth, Momentum, Liquidity and Sentiment. I don’t often say this lest it swell his (already enormous) head, but Kevin is one of the best pure stock pickers I have ever met on Wall Street.
Research is the key to everything we do. It drives all of our revenue generation, it supports the development of new asset management models. We use our own home grown quantitative tools as the first step in stock selection. We don’t use a black box, but we deploy as much technology as we reasonably can to help the process. An overlay of our own decision making comes on top of that. The combination of top down/bottoms up approach is what led us to the conclusion (on Wednesday, May 5th, 2010, at 6:39 am) that the Market had changed tone.
We run 3 business lines:
1) Asset Management These are separately managed accounts. There are two main approaches we use. The most aggressive is our Long/Short accounts. (That was what had gone to 100% cash on Wednesday). This approach combines our macro view of the markets with long and short stock selections.
We also have developed several Asset Allocation models. We do much of the work in house, but we have in the past, hire outside quants and PHD mathematics to help in their construction. The goal of our largest model is to target market performance with less risk and reduced volatility. We consider this a conservative investing approach. We own our own RIA, and house our accounts at TD, Schwab, RBC, and later this year, at Fidelity (TD is where the bulk of our assets are).
Building this business is a gradual process that takes place over years.
2) Institutional trading: Some of the shorter term ideas, as well as our overall market posture, is shown to our institutional clients. They pay a few cents per share to trade through the BD we own.
The nice thing about trading is that it generates immediate revenue, which is then plowed back into building out the research platform. Trading uses FusionIQ ideas, which then subsidizes even more hiring, development, etc.
3) FusionIQ. (fusioniqrank.com) This is our online quantitative tool. IQ is not an advisory service, it is simply a powerful quantitative tool that investors, traders and advisors can use. About half of the subscribers are market professionals — brokers, money managers, and Registered reps. A client recently called it Bloomberg lite, and while that is a generous description, it conveys the main idea.
Currently, we offer the basic IQ service for $50 per month. Later this year, we will be rolling out an ETF only version (for about half of that), and a higher end version geared for managers for more than double that. The system ranks over 7,000 stocks, and then applies a series of trading algos to them. Breakouts, Short Squeezes, Buy & Sell signals are some of the trading screens (there are dozens). We have a joint venture with the Hong Kong Economic Journal to produce a Chinese version of IQ for the Shangai market.
The hardest part of running any quant program is a) keeping all of the (very expensive) data feeds clean and free from errors and noise; and 2) getting them all to play nicely with each other; 3) while keeping the cost down. We could probably make this much easier by paying almost $100k/mo for a custom feed, but that would make the product way too costly.
Eventually, we would like to produce a real time version — I guesstimate that will end up being over $300 per month due to the tick by tick feeds. Until then, we have been experimenting with generating real time signals of specific trading algos — you will eventually be able to subscribe to these through the Stock Twits store, as well as via Minyanville’s Buzz & Banter.
One last thing: The blog was never intended to be run as a business. It is simply what someone who works on Wall Street is thinking about or looking at. “Helping to quiet down the voices in my head” would be a more suitable tag line.
I find myself in agreement with Daniel Boorstin, Librarian of Congress, who said “I write to find out what I think.” Setting down ideas each day is a helpful process. It creates a searchable archive of commentary. Best of all, it generates immediate feedback, tremendous ideas and additional suggestions from readers.
Of course, it also gives me a platform to push back against the tyranny of stupidity in the world, the foolishness of our most esteemed institutions, and to counter the mainstream silliness that passes for American public discourse. Now that I reread this, I think I may have to change the tagline to “Helping to quiet down the voices in my head . . . “
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